Employee or Contractor? 5 Common myths busted

Contractors and employees have very different rights and obligations. As a small business owner and employer, it’s your responsibility to understand the differences and ensure individuals working for you are legally employed. If you’re looking at the differences between hiring an employee vs contractor, here’s what you need to know:

A contractor is a person or business that enters into a contract with another person or business, usually at a fixed price. Contractors are not employees of a business – they aren’t legally bound under an employment contract. Instead, contractors generally operate under a contract which stipulates scope of work, expected completion date and anticipated cost.

There are two types of contractor: independent contractors and subcontractors. Independent contractors run their own business and are hired to do work as stipulated within their contract. A subcontractor is an independent contractor hired by another independent contractor to help them complete their contracted work. Got that?!

On the other hand, employees generally have set hours of work, are paid a wage and entitled to holiday leave, sick leave and superannuation.

According to the Australian Government’s Business.gov.au website, these are the top 5 Myths associated with hiring employees vs contractors.

Myth 1 – People who do short-term work are automatically a contractor

Just because you’re hiring someone for a few hours or a couple of days at a time, doesn’t mean they’re automatically a contractor. Both employees and contractors can be hired for:

  • casual, temporary, on call and infrequent work
  • busy periods
  • short jobs, specific tasks and project

Myth 2 – Workers with an ABN are always contractors

Think that workers with ABNs are always contractors? That’s not always the case!

If the working arrangement is employment, whether the worker has, or quotes, an ABN is not the deciding factor of whether or not a worker is a contractor.

Myth 3 – Because you’ve been invoiced for work performed it means the person is a contractor

Just because you’re invoiced for work that was provided, doesn’t necessarily mean that the person is a contractor! Receiving an invoice from a worker is not the deciding factor – as a business owner, you need to consider the whole working arrangement so you’re clear on your tax and super.

Myth 4 – The majority of people in your industry are contractors, which means you workers should be too

So you’ve hired a worker and assumed they’ll work under a contracting arrangement because that’s how workers are usually treated in you industry. Don’t just rely on how other people are doing things. Make it your business to consider the terms and conditions of each individual’s working arrangement. This way, you can be clear on your tax and super responsibilities and be sure you’re getting it right.

Myth 5 – It says that your worker is a contractor in a written agreement, so they must be one

Just because it states in a written agreement that your worker is a contractor, doesn’t mean that they are – nor does it protect you from potential penalties for getting it wrong!

If your worker is legally an employee, having a written agreement will not:

  • override the employment relationships or make the worker a contractor, or
  • remove your tax and super obligations.

Thousands of Australian small businesses require an additional cash flow injection each year. If you’re looking to take advantage of an opportunity or purchase new equipment, apply online for a small business loan today.

Source & for more info: www.business.gov.au

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